This action was commenced in January 1981 with a request for injunctive relief by the Buffalo Forge Company [Buffalo Forge]. Plaintiff charged the Ampco-Pittsburgh Corporation [Ampco] with violations of various federal securities, antitrust, and banking laws. The charges arose within the context of an attempt by Ampco to purchase all Buffalo Forge stock at a price of $25 per share.

The request for an injunction was denied on January 26, 1981, on the ground that Buffalo Forge did not demonstrate sufficient preliminary proof to warrant the issuance of an injunction. This decision was affirmed by the United States Court of Appeals for the Second Circuit. Buffalo Forge Co. v. Ampco-Pittsburgh Corp., 638 F.2d 568 (2d Cir. 1981).

Throughout these proceedings, Buffalo Forge resisted Ampco's proposed acquisition and rejected the stated price per share. Buffalo Forge searched for an alternate buyer for its stock. On February 9, 1981, Buffalo Forge entered into a merger agreement with a "white knight," Ogden Corporation [Ogden].

As part of this agreement Ogden purchased 425,000 of Buffalo Forge treasury shares at $32.75 per share. Ogden paid these shares with a promissory note, payable over 10 years with an annual interest rate of 9 percent. The agreement also granted Ogden a one-year option to acquire an additional 143,400 treasury shares, again for the price of $32.75 per share.

The merger agreement was announced to the public the same day. A flurry of bidding activity followed the announcement. On February 10, Ampco increased its offer from $25 to $34 per share. Ogden then moved by making a cash tender offer of $37 per share for 850,000 shares, to be followed by a tax-free share-for-share merger with Buffalo Forge. Ampco responded by increasing its offer to $37.50 per share, whereupon Ogden withdrew from the bidding war.

Ampco thus acquired control over Buffalo Forge. On March 9, Ogden tendered its 425,000 shares of Buffalo Forge stock. Ampco refused to pay for the shares. The Buffalo Forge Board of Directors had declared a 27 1/2 cent dividend per share on March 5. The dividend was not paid to Ogden. In January 1982, Ampco had refused to let Ogden exercise its option to purchase the additional shares of stock. Ampco stated that it would not pay for any stock, nor would it pay the dividend until after a judicial determination regarding the validity of the purchase of the shares. These are the actions underlying this dispute.

In June 1981, after it acquired control over Buffalo Forge, Ampco moved to amend its complaint to delete certain of the claims, primarily those asserted under the federal securities laws, and to realign the parties. The motion was granted, and Ampco was given leave to prosecute the claims against the former directors in the name of Buffalo Forge and the Ampco-Pittsburgh Securities II Corporation (the entity organized by Ampco for the purpose of facilitating the takeover). For purposes of simplification, the plaintiffs shall be referred to as "Ampco."

Basically, Ampco seeks rescission of the sale of the treasury stock and the option to purchase made to Ogden by the former members of the Buffalo Forge Board of Directors. Plaintiffs charge the former members, David R. Newcomb, Raymond J. Popp, Thomas W. Burke, Edward W. Duffy, John A. Gregory, and Frederick S. Pierce (collectively referred to as the individual defendants) with breach of their fiduciary duties to the corporation and with waste of the business assets of Buffalo Forge. Ampco has set forth a number of grounds upon which its claims are based. Ampco alleges that the individual defendants were primarily motivated by their own interest in avoiding a taxable sale of their stock because some of the directors held sizeable quantities of stock at low tax bases. This caused the directors, according to the plaintiffs, to seek out a tax-free, share-for-share exchange, like that offered by Ogden, and reject other tender offers.

In addition, Ampco claims that the failure of the individual defendants and Newcomb, in particular, to negotiate directly with Ampco to obtain a better offer was a breach of their fiduciary duty. Also, that the sale of the 425,000 treasury shares and the purchase option given in exchange for a ten-year, 9 percent promissory note was a "tip" to Ogden, and the contract was entered into in an attempt to stifle bidding competition.

Claiming that Ogden conspired with the individual defendants, with Newcomb, in particular, and their agents, Ampco seeks rescission of the sale of the stock. In the alternative, Ampco seeks damages from the individual defendants.

The defendants have denied any impropriety in the negotiations or in the contract for the sale of the stock. The individual defendants claim that they were acting as reasonable directors at all times and exercised their best business judgment. They contend that their actions were undertaken, in part, upon the professional advice of investment bankers and lawyers and are protected by operation of the provisions of the New York Business Corporation Law §§ 504, 717.

Ogden has filed several counterclaims seeking payment for the 425,000 shares of stock, plus the 143,400 shares available to Ogden under the purchase-option clause of the merger agreement. In its capacity as a shareholder, Ogden demands payment of the dividend of 27 1/2 cents per share, declared by the Board of Directors on March 5, 1981, and payable on March 31, 1981.

In addition, Ogden claims that Ampco's refusal to pay for the 425,000 shares on the same basis as was afforded other tendering shareholders constitutes a manipulative practice in violation of the New York Security Takeover Disclosure Act, New York Business Corporation Law §§ 1600 et seq. and its accompanying regulations. Ogden charges Ampco with violations of the provisions of Article 8 of the New York Uniform Commercial Code and various provisions of the Business Corporation Law. Ogden seeks payment with interest at the prime rate.

The case was set for trial after the amended pleadings were filed. In a supplemental memorandum of law submitted in December 1981 and a pretrial conference held on January 6, 1982, the plaintiffs moved again to amend their complaint to state a claim of violation of the federal securities laws. Ampco set forth its argument that the sale of the stock, plus an option to purchase given to one of two competing tender offerors, constituted a "manipulative device" within the meaning of section 14(e) of the Williams Act, 15 U.S.C. § 78n (e), and that the plaintiffs are entitled to rescission of the contract pursuant to 15 U.S.C. § 78cc(b).

Trial on all of these issues was held on January 26, 27, and 28, 1982. Prior to trial, the parties filed a joint stipulation of facts. These stipulations are accepted and made a part of the court's decision. After review of the trial transcripts and memoranda of law, and after examination of the exhibits produced at trial, the court makes the following findings of fact and conclusions of law.

II. Parties

Buffalo Forge Company is a New York corporation, with its principal place of business at 490 Broadway Street, Buffalo, New York. Since July 14, 1981, Buffalo Forge has been an indirect, wholly owned subsidiary of Ampco-Pittsburgh Corporation, which is a Pennsylvania corporation, with its principal place of business at 700 Porter Building, Pittsburgh, Pennsylvania. Also involved is Ampco-Pittsburgh Securities II Corporation [A-P II], a wholly owned subsidiary of Ampco, a Delaware corporation, with its principal place of business at 2625 Concord Pike, Wilmington, Delaware. The remaining corporate party is the Ogden Corporation, a Delaware corporation, with its principal place of business at 277 Park Avenue, New York, New York.
Chief amongst the individual litigants is David R. Newcomb who was, until March 30, 1981, President, Chief Executive Officer, and a director of Buffalo Forge. He is currently President of Buffalo Forge and a director of Ampco. Raymond J. Popp, Thomas W. Burke, Edward W. Duffy, John A. Gregory, and Frederick S. Pierce were directors of Buffalo Forge at all times from January 2, 1981, to March 30, 1981. During the time period under question, it is undisputed that the directors held the following shares of Buffalo Forge stock:
Newcomb 24,054
Popp 8,974
Burke 1,000
Duffy 200
Gregory 22,700
Pierce 72,745

All of the directors' stock was held at tax bases below $25 per share.

III. Findings of Fact

On Friday, January 2, 1981, Marshall Berkman, [Berkman], Chairman of Ampco, telephoned Newcomb to inform him that Ampco was about to announce its intention to make a $25 per share tender offer for Buffalo Forge shares. There had been no prior contact between Ampco and Buffalo Forge. That same day, Ampco issued a press release to announce its proposed $25 offer.

The proposed acquisition was communicated by Newcomb to the remaining members of the Buffalo Forge Board of Directors. Newcomb also contacted Buffalo Forge's financial advisor, Kidder, Peabody & Co. [Kidder], its lawyers, Skadden, Arps, Slate, Meagher & Flom [Skadden Arps], and Lord, Day & Lord [Lord Day] to inform them of Ampco's offer. The Board decided to take no action until Ampco's offer was formally commenced.

On January 7, 1981, Ampco formally commenced its tender offer for any and all shares of Buffalo Forge at a price of $25 per share. The expiration date of the offer was February 3, 1981. Acceptance of the offer by any shareholder would have resulted in the recognition of gain for tax purposes to the extent that $25 exceeded such shareholder's tax basis for such shares.

On that same day, January 7, 1981, Kidder submitted a new agreement to Newcomb, which he signed on January 8 after consulting with legal counsel. The agreement provided that Kidder was specifically retained to advise Buffalo Forge with respect to Ampco's offer and any other proposals, offers, or indications of interest concerning the sale or acquisition of Buffalo Forge's stock or assets over the next 18 months. The agreement contained standard provisions and called for Buffalo Forge to pay Kidder a fee of $150,000.00, plus an additional fee of 6 percent of the amount by which the aggregate value of any acquisition of Buffalo Forge exceeded $25 per share acquired. If at least 80 percent of Buffalo Forge's stock was tendered in such a transaction, the additional fee was payable on 100 percent of the shares.

Before signing the retainer agreement, Newcomb consulted with counsel for Buffalo Forge and was advised that the terms of the retainer agreement were ordinary and fair.

The Buffalo Forge Board met to consider Ampco's offer on January 8, 1981. At that meeting, Kidder rendered its written opinion that Ampco's offer of $25 cash per share of Buffalo Forge was "inadequate." Kidder also advised the Board that it should be possible to obtain a significantly higher offer than $25 per share. Also at the January 8 Board meeting, representatives of Skadden Arps and Lord Day reviewed the legal implications of Ampco's offer, including the directors' fiduciary responsibilities. The directors of Buffalo Forge determined unanimously that Ampco's offer was "inadequate and not in the best interests" of Buffalo Forge and its shareholders and unanimously resolved to recommend to the shareholders that they reject the offer.

The Board passed a resolution authorizing the appropriate officers and the investment bankers and legal counsel of the company

to explore and investigate certain types of possible transactions including, without limitation, the acquisition by the Company of all or part of the business of another company, the issuance or sale publicly or privately of equity or other securities of the Company, through acquisition of shares, the acquisition of the Company (or one or more of its businesses) by another Company, and joint ventures between the Company and other companies . . . ."

The Board also authorized the commencement of litigation against Ampco.

On January 9, 1981, the Buffalo Forge Board issued a press release and sent a letter to Buffalo Forge shareholders urging them to reject Ampco's offer.

Newcomb was authorized by the Board to seek out alternatives to Ampco's $25-per-share offer. As stated above, Buffalo Forge commenced this lawsuit against Ampco on January 9, 1981. On January 12, 1981, Buffalo Forge filed a request for a public hearing with the New York State Attorney General pursuant to the New York Security Takeover Disclosure Act.

Ampco's offer was originally scheduled to expire on February 3, 1981. On January 27, 1981, the New York State Attorney General issued an order staying Ampco's purchase of shares to maintain the status quo pending the completion of his investigation. On February 2, 1981, the Attorney General issued a further order requiring certain disclosures and continuing the stay pending compliance with the disclosure order. On February 3, 1981, Ampco made the required disclosures by amendment of the registration statement previously filed with the Attorney General. On February 5, 1981, the Attorney General lifted the prohibition on Ampco's purchase of shares, effective at midnight on the fourth day after the mailing of the disclosures to Buffalo Forge's shareholders.

On January 23, 1981, the Buffalo Forge Board, on the recommendation of Newcomb, approved a proposal for the corporation to enter into employment agreements with key employees on terms to be negotiated by Newcomb. Such contracts with seven vice presidents were signed on February 20, 1981, effective as of January 31, 1981. Furthermore, on January 23, 1981, the Buffalo Forge Board unanimously approved the signing of a retainer agreement with the law firm of McGrath, Meyer, Lieberman & Lipp.

After the January 8 meeting of the Board, Newcomb undertook a search for alternative tender offers. After consulting with the investment bankers, Newcomb decided not to negotiate directly with Ampco to attempt to obtain an increase in Ampco's stated offer. This advice was based on Kidder's experience in unsolicited tender offer situations, which had shown that the offeror is unlikely to increase its bid substantially in the absence of a competing bid. Kidder also expressed its belief that, in light of its prior dealings with the Berkman family (which controlled Ampco), Ampco was not likely to raise its offering price. Kidder prepared a report about Buffalo Forge for distribution to interested companies.

As noted above, Ampco was free to purchase shares as of February 5, 1981, pursuant to the order of the Attorney General. With this deadline in mind, Newcomb and Kidder contacted numerous companies to determine whether they were interested in making a tender offer. The members of the Board of Directors were aware of these negotiations.

Among the companies contacted by Newcomb and Kidder were: Central New Jersey Industries; Interpace Corporation; I.C. Industries; Thomas Tilling; Kuhnle, Kopp & Kausch of West Germany [KKK]; and Bass Brothers of Houston. These were the companies which, in addition to Ogden, expressed the strongest interest in acquiring Buffalo Forge. Newcomb and Kidder discussed the possibility of acquisition with numerous other companies as well. After initial discussions, Central New Jersey Industries concluded that it was without adequate financial resources to make an acceptable offer and withdrew from the arena of potential bidders.

Newcomb traveled to West Germany to meet with KKK. He discussed with KKK the possibility of the purchase of all of the Buffalo Forge treasury stock for a price of at least $25 per share in cash. The talks did not result in a tender offer. At about the same time, Kidder discussed the possibility of the sale of ...

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